Syrian Uncertainty to Cause Oil Price Spike?

Well, sure, when they are just stories – but if there is the possibility that they are a fair reflection of real events and that there is the possibility the consequences could affect us all, they become less curiosity and more a source of alarm.

So portends an article in the Telegraph this week, reporting a meeting said to have taken place between Russia’s Vladimir Putin and Saudi Prince Bandar bin Sultan, head of Saudi intelligence, three weeks ago in Mr. Putin’s dacha outside Moscow. The gist of the story is the Saudis are seeking support from Russia in pressuring Syria’s President Assad to stand down in return for a Saudi-Russian pact on the oil price and agreement on “managing” the European market for oil and natural gas/LNG.

The Saudis apparently promised the Russians they would be able to keep their Syrian naval base post-regime-change in Syria, and the Saudis’ proposition was said to enjoy full US backing. In addition to such inducements, Prince Bandar is said to have added veiled threats that if Russia did not cooperate, then Chechen rebels could disrupt the 2014 Winter Olympics in Sochi and military action against Syria’s regime was likely to go ahead anyway, with or without Russian acquiescence.

It has to be said the reports of this meeting and the course of discussions have come from just two sources – details leaked to the Russian press and a more detailed article in the Lebanese newspaper As-Safir, which has Hezbollah links and is hostile to the Saudis – but the Saudis have not denied a meeting took place.

Well, an alliance between the OPEC cartel (for whom Saudi Arabia often speaks) and Russia would together control over 40 million barrels a day of oil production, or some 45% of global output. As the article points out, such a move would alter the strategic landscape, particularly for Europeans, for whom Russia and the Middle East are dominant suppliers.

A spike or even sustained rise in oil prices would undoubtedly create a drag on stuttering global growth.

Maybe fortunately, reports suggest the Russians sent the Saudis packing, but what is released to the press and what was agreed in public may, forgive my cynicism, not be the same thing.

Russia desperately needs to maintain prices of oil north of $100/barrel to fund its budget and keep the economy out of the potential recession, on the edge of which it is teetering. As Western naval forces gather in the eastern Mediterranean, it will be interesting to see if Russia does any more than just complain loudly at direct military action.

Meanwhile, the threat of action against Syria, loss of production in Libya and Nigeria, and falls in oil stocks have combined to raise the Brent crude benchmark to a five-month high of $112 per barrel as once again the Middle East shows it has unending potential to push up oil prices when we least need it.